Mature markets with higher carbon prices will move from importing finished steel from more emissions-intensive producers, such as China and India, to importing green direct reduced iron to manufacture low-emission steel using electric arc furnaces. The Middle East, Australia and Brazil will meanwhile emerge as DRI export hubs, says Wood Mackenzie.
The EAF share of global steel production will increase from the current 28% to almost 50% by 2050, according to the base-case scenario, requiring at least 550 million tonnes of new EAF capacity. The required investment will be as much as $130 billion, Woodmac says in a new report seen by Kallanish.
DRI’s share of total metallics demand will rise from 6% currently to 13% by 2050, with production growing nearly five times faster than total metallics demand, to 320mt, it continues.
The consultancy expects almost half of all DRI produced by 2050 to be hydrogen-based. As new processing hubs emerge, by 2050, almost 25% of DRI supply will be traded, compared with just 7% now.
Europe, China, Japan and South Korea will be the epicentres of green DRI demand as they move to decarbonise.
The Middle East and Australia will see the share of renewables in their power mix exceed 50% and 75%, respectively, by 2050. Availability of land and attractive renewable power costs should support delivered hydrogen prices of $2-3/kg by 2050.
The Middle East boasts ample low-cost gas supply through to 2050, supporting gas use for blending with green hydrogen. Australia has significant undeveloped gas resources.
Australia’s iron ore will require smelter technology to achieve DR grade, while Brazil has high-grade ore but faces operational challenges at mine sites. The Middle East meanwhile imports ore feedstock from both and will see Vale set up metallics mega hubs going forward. The region already has the DRI technological edge.
Woodmac expects the industry to face a gap of around 200mt of high-grade ore supply by 2050.
In the EU, producing EAF steel using imported Middle Eastern DRI will be up to 15% cheaper than making steel using locally manufactured DRI. Woodmac expects the EU to be the largest importer of DRI globally, accounting for over a third of total trade by 2050.
China is likely to look to a mix of imported and locally produced DRI. While imports from the Middle East will be more competitive, China is also likely to invest at home to support its massive domestic steel sector.
Woodmac expects DRI capacity to double over the next three decades, requiring up to $80 billion of capital investment.
“The increased use of scrap through recycling is the final part of steel’s decarbonisation jigsaw,” the consultancy says, but as the cost of greener steel rises, quality will take precedence over quantity. Technology and streamlining the scrap supply chain will be necessary to limit impurities in scrap.
Mature economies will emerge as future scrap hubs as well as key markets for DRI imports.
For China, recycling offers a huge potential advantage for local steelmakers. But scrap availability will only gather pace in the latter half of the forecast period, as the majority of China’s construction boom ‒ a major source of scrap as buildings are demolished ‒ has taken place since the 2000s and has a lifespan of 30 to 50 years, Woodmac concludes.
Adam Smith Poland